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In a brief, but thought provoking essay appearing in the February 7, 2011 issue of America Magazine, John Diiulio asks how we might value of nonprofits in American society. While his focus is on religious institutions, specifically the Catholic Church, the question is timely, as he points out, because whenever the economy takes a dip local governments especially start looking at nonprofits the way Wyle E. Coyote used to eye the Road Runner. Does withdrawing tax exemption during times of economic crisis really make things worse?

Here is a short excerpt from his article:

As the fiscal crisis, which first showed itself in 2007, continues, ever more federal, state and local policymakers in both parties are asking tough but timely questions about the nonprofit sector: How much does it lighten local property tax coffers and reduce federal tax revenues? What is the total tab for all the tax-funded subsidies? And what does the wider public actually get in return for all the tax breaks and government funding? Studies are underway, but nobody knows for sure what the results will be. Yet no matter what the research ultimately shows, public pressure for accountability will continue to grow as more media attention is focused on corruption scandals involving nonprofits and as the public sees and hears more about nonprofit executives who make really big bucks (like the many private university presidents with million-dollar-plus annual compensation packages).

The issue is obscured by references to scandal and excessive salaries, and using exemption for houses of worship is not a good context. Tax exemption for worship is a whole 'nother matter. I'm talking more about "good" activities of the type that are more apt to commercialization. And it seems to me that in the information age, we could generate a market for just about anything worth having. We could probably eliminate all the scandals and questionable salaries and still be faced with the question whether tax exemption is, in the main, worth the foregone revenue. That's really the question to be asked. Diiulio puts it this way: how would we react if one day we woke up an all the tax exempt nonprofits no longer existed? I am of the opinion that tax exemption should be reserved only for institutions that necessarily, not just coincidentally, alleviate poverty. Diiulio's response, by the way, is almost entirely conditioned on the assumption that nonprofits serve those who cannot do for themselves. What about arts, sports, and things indulged in primarily by people who don't worry about where their next meal comes from? That is a typical and not entirely illegitimate retort, I'll admit. But I am willing to leave those things to the market. This is a blog, remember, so its ok to articulate "off the cuff" as I am doing now without all sorts of references to ancient history and philisophers. But even those who may disagree usually point to the lack of "free care," for example when it comes to tax exemption for nonprofit hospitals. Besides, one of the goals of blogging is to increase readership and provoke debate. That's not why I insist that tax exemption should be reserved for institutions that serve the poor (details, details, I know, but I don't have time to elucidate on the details; I'll do it in a law review article one of these days). I think tax exemption for organizations that cater to those who are able is a waste of money.